Extra health costs on the way for employers

As Orange County companies gear up to renegotiate health insurance plans for 2014, employers face the likelihood of additional costs in the form of a new fee that will be imposed on insurers under the Affordable Care Act.

The fee, which applies nationwide, will finance a $25 billion, three-year transitional fund, most of which is intended to help insurers defray the extra medical costs they expect to encounter once they are required by law to fully cover patients with pre-existing conditions. That requirement, which takes effect next year, is one of the most prominent provisions of the health care reform act.

The fee next year will be $63 – or $5.25 per month – for every person enrolled in employer-sponsored and individual plans. It will be paid by the health plans themselves – a kind of industry self-insurance policy. But it almost certainly means bigger health costs for employers, which will in turn have to decide whether to pass on those increases to their workers in the form of higher premiums or curtailed benefits.

"I've been doing this for 30 years and I've never seen an insurance company say they are going to take the burden, so we are just planning on taking it," said Kathryn Gray, chief organizational development officer of Aspen Medical Products, a manufacturer of back and neck braces that employs about 110 people at its Irvine headquarters. "We don't think employees should pay the price, so we will be absorbing the charges," Gray added.

She said that because of the combined impact of the new fee and a 2.3 percent excise tax on medical devices that took effect Jan. 1, the company has suspended plans to build a new distribution center.

Some employers, however, see no such negative fallout from the fee. Elizabeth Parker, co-owner of the Tulsa Rib Co. in Orange, said its impact will be largely mitigated by a sharp recent decline in premium hikes on the health plan her restaurant offers its employees. She said the premiums rose by only 6 percent this year and 4 percent in 2012, compared with 38 percent the year before.

"We'll take $60 any day compared to what we were seeing," Parker said. She said small businesses stand to benefit from the Affordable Care Act because they will be able to buy coverage more cheaply in the insurance exchanges scheduled to open next year.

The new fund is expected to collect $12 billion in 2014, with $8 billion more added the following year and another $5 billion on top of that in 2016.

The new fee will be levied across all sectors of the private health insurance market, but the proceeds are earmarked to help contain the rise of premiums exclusively in the individual segment. There is a lot of pent-up demand in the individual market, where chronically ill people have been excluded or charged sky-high premiums for years.

The new law not only makes it illegal to refuse insurance to such people, it also prohibits charging higher premiums on the basis of an individual's medical history. Doing away with those two practices is expected to generate significant additional medical spending next year.

The fund will relieve health plans of much of that extra burden by taking over the payment of claims on their most expensive patients. Once the medical bills for an individual surpass $60,000, the fund will kick in and pay 80 percent of costs above that threshold, up to a limit of $250,000, according to Larry Levitt, senior vice president of the Kaiser Family Foundation, which has closely followed the health reform act.

The U.S. Department of Health and Human Services, which will oversee the program, estimates it will reduce premiums in the individual market by 10 percent to 15 percent compared with the levels to which they would otherwise rise after the non-discrimination provision takes effect.

"We need this because all these new people are coming into the program and it's going to be hard to predict how much the claims are going to be," said Kelly Moore, spokeswoman for the Orange County Association of Health Underwriters and owner of Moore Benefits Inc., a medical insurance broker and administrator.

Gray of Aspen Medicalsaid that whileitis right to bring people without insurance into the system and discourage discrimination against the chronically ill, "it doesn't seem right that businesses are being asked to bear the burden of this ... . We are the ones creating jobs."

But $63 per capita is a lot cheaper than the "hidden fee" employers end up paying to share the cost of uncompensated emergency room care for people who are locked out of the insurance market, said David Chase, California outreach director for Small Business Majority, a national advocacy group.

He noted that the health care law contains other measures that favor businesses, including a tax credit for small employers that provide insurance and a rebate from health plans that fail to spend at least 80 percent of premiums on medical care or quality improvement. "So you can't just focus on a $63 fee," he said.